Rise in existing-home sales is first since February

WASHINGTON (MarketWatch) -- Sales of existing U.S. homes rose 0.5% to a seasonally adjusted annual rate of 6.24 million in October, the first increase since February, the National Association of Realtors reported Tuesday.

Inventories of unsold homes on the market continued to grow, while sales prices fell at the fastest pace ever recorded.

The report was better than expected. Economists were forecasting sales to fall to 6.15 million annualized, according to a survey conducted by MarketWatch. See Economic Calendar.

September's sales were revised higher to 6.21 million from 6.18 million initially reported. Sales are down 11.5% from October 2005's 7.05 million pace.

"As expected, existing-home sales appear to be stabilizing, fingers and toes crossed," said David Lereah, chief economist for the Realtors. Market fundamentals are improving, he said. Read the full report.

Median sales prices fell a record 3.5% year-over-year to $221,000, the third decline in a row. Since 1968, when the Realtors began collecting the data, prices had never fallen three months in a row on a year-over-year basis.

Falling prices are "a good thing," Lereah said. "Sellers are cutting their price enough to encourage sales," said Pat Vredevoogd Combs, a Realtor from Grand Rapids, Mich., and president of the NAR.

Inventories of unsold homes increased 1.9% to 3.854 million, representing a 7.4-month supply at the October sales rate. It's the largest months' supply since April 1993.

With inventories continuing to rise, "that is hardly 'stabilizing,'" wrote Ken Mayland, chief economist for ClearView Economics, in an email.

Lereah said the rise in inventories in October was untroubling, since it reflected a typical surge in October ahead of the winter sales doldrums. "Inventories have stabilized," he said.

"We may be hitting the bottom," said Bill Hampel, chief economist for the Credit Union National Association. With mortgage rates easing and prices flat or falling, buyers are finding houses more affordable, he said.

Hampel said he's encouraged that sales volumes seem to have plateaued without prices plunging precipitously. However, he doesn't expect sales to rebound for several more years.

"The pending home sales index and mortgage applications have pointed to some near-term stabilization in home sales, but we continue to look for another 10% or so downside -- taking us back to a pace of activity last seen in 2002," wrote David Greenlaw, an economist for Morgan Stanley, in an email.

Regionally, sales rose 6.4% in the West and were unchanged in the Midwest. Sales fell 2.9% in the Northeast and fell 1.2% in the South.

Sales of single-family homes rose 1.3% to 5.5 million. Sales of single-family homes are down 11% in the past year. Median sales prices fell 3.4% year over year to $221,300. The inventory of unsold single-family homes rose to 7.2 months.

Sales of condos dropped 4.8% to 778,000. Median sales prices are down 5.3% in the past year to $214,300. Condo sales are down 14.5% in the past year. The inventory of unsold condos rose to 9.1 months.

"That's a segment of the marketplace that's experiencing some pain," Lereah said.

In other reports, the Commerce Department said orders for durable goods dropped 8.3% in October, led by weakening demand for airplanes, defense goods and computers. See full story.

Also, the Conference Board said its consumer confidence index fell to 102.9 in November from 105.1. See full story.

Combined, the weak durables report, the drop in confidence and the increase in unsold homes "all point to greater downside risks to economic growth," wrote Roger Kubarych, an economist for UniCredit Markets, in a note to clients.

Rex
Nutting

Rex Nutting is a columnist and MarketWatch's international commentary editor, based in Washington. Follow him on Twitter @RexNutting.

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